Friday, February 04, 2011

Is Korea's Economy Overhyped?

Dear Korean,

A perception exists in the US that S. Korea has a much stronger economy than much of the rest of the world. Modern infra-structure, high profits, and booming success. Is there too much hype?


Dear SDH,

The Korean is not sure if the perception is widely shared among Americans. Just the other day, the Korean got another "North or South?" question -- in real life, not from the blog. In fact, the Korean is nearly sure that a significant portion of Americans, if not the majority, probably cannot locate Korea in a map.

But the point that there is a perception is definitely correct. As shown in the Daily Show clip below, President Obama mentioned South Korea five times in his State of the Union address. The growth of Korean economy feels particularly palpable in America, because leading Korean companies often make final consumer products. The visible flood of Samsung Android cellphones, LG flat screen television and Hyundai cars definitely makes one feel that Korea has arrived. Korea's soft products -- movies, television shows, pop music-- are getting a massive dose of international attention. Major newspapers of America cover Korea-related stories much more frequently than before. Heck, this blog would not be where it is now if Korea did not draw people's attention as much as it does now.

Is there too much hype over this? The Korean's thought is -- maybe a little bit.

Anyone who reads this blog regularly knows that the Korean is the biggest fan of Korea's success story. One of the poorest countries in the world (which is actually a nice way to describe a war-torn shithole) that had been a backwater monarchy for millennia turns itself into a modern democracy with world-class economy within 40 to 50 years. Find another country in human history that did what Korea did. You can't.

Is Korea a "stronger economy than much of the rest of the world"? Certainly. Korea's PPP-controlled GDP is either 12th or 13th in the world, ahead of such unquestionably wealthy countries like Canada, Australia, the Netherlands and Switzerland. And Korea did not become this way by leveraging the number of its people or the size of its country, like China or India did. Among the top 15 greatest economies, Korea has the second smallest population following Spain and the smallest land mass. For example, Indonesia has nearly five times Korea's population and 20 times Korea's land mass, but Korea's economy is 50 percent greater than Indonesia's.

And Korea has no signs of slowing down just yet. A lot of countries -- say, Mexico or Argentina -- have experienced dazzling growth in the early going until they plateau at around $15,000 of PPP-controlled per capita GDP. But Korea shattered that ceiling, reaching nearly $30,000 in PPP-controlled GDP per capita at this point. Korea is one of only three OECD member (i.e. an advanced industrialized country) that did not experience negative growth in 2009, as the whole world still climbing out of the global recession. In 2010, Korea's economy grew by sizzling 6.1 percent. In other words, Korea has a greater upside than many other advanced economies.

But while all this is uniquely incredible, one must soberly look at where Korea is now. It's nice that Korea has world's 12th largest economy, but that still means that it has 11 more countries ahead. And the gap between Korea and the top 5 economies in the world (if we suppose the European Union to be a single country) is huge. Japan has an economy that is still three times the size of Korea's. China, more than six times. The U.S. and EU, more than 10 times. Also, there is a real question about whether Korea can maintain its torrid pace of growth for another decade, let alone beyond.

Because the Korean is a massive NBA fan, this "hype" over Korea's economy reminds him of a certain NBA player: Derrick Rose, point guard of Chicago Bulls. Rose came into this season with vastly improved jump shot, which made his spectacular drives to the hoop even deadlier. The Bulls have a sparkling 34-14 record this season, definitely on pace to significantly improve upon their last year's record of 41-41. Because of this, Rose is considered by many to be a legitimate MVP candidate and a front runner of that race by some.

But is Rose really the most valuable player of the NBA? Chicago is only the fifth best team in the NBA. Rose is also a surprisingly inefficient scorer (surprising because of the frequency at which he goes to the rim,) because he elects to shoot a more difficult shot than trying to draw a foul. Rose's defense improved from last year, but really it went from atrocious to salvageable. Yet a lot of people cannot get away from the idea that Rose should be the MVP this season, because they simply cannot take their eyes off Rose's gaudy scoring averages and electric finishes at the basket. People also factor in the fact that Rose has so much upside because this is only Rose's third season, although there is no real guarantee that Rose could get better than this. (For example, LeBron James never really improved from his third year.)

Same with Korea. Is Korea's economy exciting? Yes, as much as Derrick Rose's game is exciting. But we also have to recognize the fact that a lot of the excitement comes from the fact that Korea makes visible, high-tech stuff (the economy's equivalent of SportsCenter highlights) and because Korea seems to have a lot of upside. While one can get legitimately excited by them, one also has to realize where the reality stops and where the bubble sets in.

Just for fun, here is the list of matches between major world economies and NBA players that the Korean came up with:
  • India - Monta Ellis, Golden State Warriors. Ellis has some ridiculous scoring numbers, which makes Golden State fans swoon. But those numbers come from the fact that the Warriors play at the fastest pace in the NBA (and therefore have more possessions,) and Ellis chucks up shots like no one else's business. Likewise, India's economy seems awesome, until one realizes that they have a billion people who speak English and are willing to work for cheap.
  • Brazil - Joe Johnson, Atlanta Hawks. Both have excellent economy/game, but are constantly omitted from the discussion of powerhouses/superstars.
  • Canada - Chris Bosh, Miami Heat. Standing next to a superduperstar, it is easy to underappreciate both Canada and Bosh. But they are both integral to the success of their more successful partner. Also fitting that Bosh's first team was Toronto Raptors.
  • European Union - Boston Celtics. A group of old vets that might be the best if they could work together and their joints don't fail. Kevin Garnett is Germany (formerly menacing), Paul Pierce is Great Britain (steady excellence), Ray Allen is France (used to be good, now good at only one or two things.) Either Italy or Spain could be Rajon Rondo, and Cyprus is definitely Luke Harangody.
  • Japan - Kobe Bryant, Los Angeles Lakers. There are tons of whispers that Kobe is slowing down because of his age, and at times he does look old and liftless. And then Kobe still throws down an occasional 40 point game to remind everyone who he was. Likewise, there are tons of talks about how Japan is near its demise, except Toyota is still the number one car company in the world and PlayStation still shapes the world's culture. (You have no idea how much this kills the Korean, an avid Lakers fan, to give Kobe to Japan.)
  • China - Dwight Howard, Orlando Magic. Those huge muscles! Spectacular blocks! Nightly double-doubles! Those are just as enthralling as China's huge economy and seemingly cutting-edge development. Except Howard has surprisingly skinny legs and shaky post game that no one talks about, like the way no one talks about how much China's economy is leveraging cheap labor or utterly destroying its environment.
  • United States - LeBron James, Miami Heat. Both egomaniacs who/which can be totally oblivious to what other people/countries feel, which cause a lot of hate and anger. Both have weaknesses that they totally should not have. (James, total absence of a post game despite having the body of a power forward, the U.S. a miserably bad education and healthcare system despite having the most money in the world.) Yet when push comes to shove, there should be no doubt who/which is the best in the world. And now, the Korean will exorcise this blasphemy by watching Kobe: Doing Work for the 43rd time.
Got a question or a comment for the Korean? Email away at


  1. It will be interesting to see how Korea and Japan differ (or most likely, coincide) with their approach RE: their demographics. Low birthrate, high 65+ age group, sexual discrimination in workplace and politics, uneven immigration/troubling multi-culti issues (although too early to tell).

    Not to mention, big players control way too much economy (Samsung apparently makes 20% of ROK's GDP)

    Agreed, it's kinda overhyped.

  2. Korea's economy is not overhyped -- Korea's formula for economic success works and has been seen in Hong Kong, Taiwan, and Singapore (the Asian Tigers).

    Korea has a ceiling though -- lack of natural resources, space, low birthrate, and strict immigration standards make it future progress more difficult than other countries like China or India.

  3. "No country has done what Korea did" - look at Sweden, not war-torn but famine-struck and one of the poorest parts of Europe in the 1910's (with a large scale exodus to the US as a result - nearly a quarter of the population left the country), to become one of the worlds top 10 wealthiest countries by the end of the 1960's, with brands like Volvo, Saab, and IKEA known worldwide. Sweden was the first Asian tiger...

    Also, you can't have forgotten Japan so you must have some arguments which makes Korea's rise "uniquer" still, let's hear it!

  4. I'm going to give a contrarian view.

    It's over hyped. Since they rely upon Mercantilism and wage arbitrage. Both of which are unsustainable. Such things can collaspe very quickly when another place is cheaper.

    This is evidenced by the KRW and $ dollar peg till the late 90s. Once they went free floating currency the Krw had problems and the IMF had to come in.

    China currently holds a peg too, if they remove that Peg, China collaspes, USA collaspes and Korea collaspes (China is Korea's major export markets).

    Taiwan for example was mega in the 90s then Mainland China opened up and the Taiwanese economy went M shaped. Same with Hong Kong pre 1990s, China was closed so HK was king. HK is now and M shaped society.

    This is why I'm cynical of NK reunification. Lee Myung Bak (Hyundai Stooge) sees an opportunity to exploit wage arbitrage of the North. Where they will be happy being paid 3 meals a day. Something Chinese and Koreans are less likely to be happy about.

  5. Kind of a funny side effect of this is how this perception makes its way back to South Korea. Some Koreans seem to think that President Obama---and, by extension, ordinary Americans--are raving over Korea, resulting in an "Inception"-style scenario: A perception within a perception.

    Love the basketball analogies.

  6. Marcus_R,

    Sweden is impressive, but "one of the poorest in Europe in 1910" cannot hold the jockstraps of "one of the poorest in the world in 1953." The depth of the hole that Korea climbed out of is far deeper.

    Japan is also impressive, but they had an 80 year head start and never were a war-torn shithole.

  7. One of ur best post especially with the NBA analogy! You can say Japan is overhyped if u think Korea is? Like what cornflakes said, the economic problems are strikely similar!

    Overhyped no. Very uneven yes! No other country have just a few family businesses controling the entire economy like Korea. The ruling families are literally treated like Royalty! The lack of direct competition is a problem.

  8. Love the NBA references! The only one I take issue with is Joe Johnson does not fit in with the long term thinking journeyman-like attitude of Brazil's economy. This is not hating on JJ, I live in Atlanta, and think he's a bit too flashy with less substance type player, he just doesn't really hit the nail on the head like the other examples you put out there do. I would liken Brazil more to a Tim Duncan or another fundamentals non-flashy journeyman type player.

    As for "overhyping" I think Korea's hype is kind of deserved. Overall there is no denying Korea's change in the past 50 years has been the most dramatic. Again this kind of goes back to what you mean by "overhyped"... 12th in the world is damn impressive when you compare it to other countries that have so many other assets, but compared to China-US, yeah it may seem small in comparison. Also, yes Korea is definitely hitting a ceiling, the only game changer for Korea's economy would be if the North fell and after painful reunification the Koreas reach maybe Japan's or Germany's level at best.

  9. Actually you cannot compare 2 countries economies in ppp terms,because it's a artificial value.The chinese economy is like USD 6 trillion ,and japan's 5,5 trillion(2010).America's14 trillion.

  10. @Hekie: Actually, it's a lot more accurate to use PPP terms than pure nominal terms, as those take into account exchange rates, i.e. currency speculation; that is to say, pure nominal figures are more assigned by markets than a measure of a country's actual economic activity.

    As for Korea's economy, I'd say a bit of both. It's industrial base is fantastic, as evidenced by all those chaebol that were mentioned in the post and a multitude of others. Where Korea lags behind is in the service sector, which make up the great bulk of most advanced country's economic activity.

    Which makes it all the more frustrating that Korea doesn't reform this sector to sort of make it a second Hong Kong for China, or like Switzerland for France and Germany. Korea should make itself as open as possible in order to encourage using it as a base for investments in China, where FDI is more difficult. A place as demographically and geographically small as South Korea is never going to be able to keep up with India, China, the U.S., and the EU; it should be working to make itself a financial center in ways that don't just include things like Songdo.

    Basically: reform, reform, reform!

  11. In my opinion, Brazil, Indonesia, and Russia (just to name some countries) will all end up having a higher PPP than South Korea in the next 15 years. As impressive as South Korea's economy has performed, its upside swing is limited by its population size. That's why it makes more sense to use PPP per capita. When using that measure, South Korea is not in the top 20. However, it is climbing the ladder very fast. Its PPP per capita is ranked noticeably higher than those of the other countries I mentioned, in addition to growing faster. But once again, a big culprit (not the only one) is the larger population size of the other countries.

    In agreement with The Chinese Guy, I think the South Korean economy is reaching its saturation point. I give it 10 years.

  12. In my last post, by "saturation", I meant less than 5% economic growth.

    I liked your analogies, but I'll have to disagree with the Kobe/Japan comparison. I would especially disagree if all you're using as an example is Toyota. The Toyota of today is not the same as the Toyota 10+ years ago -- it's weaker and not as menacing.

    Most large Japanese companies are riding on the momentum generated by the strong pre-1990 Japanese economy. However, this momentum is not being enforced. Add to it stiffening competition from other foreign economies and companies, and it's more clear why it seems many major Japanese company has been struggling to make a profit in the past 5 years.

    Toyota has not been immune. You mentioned that the company is the number automaker in the world, but that's nothing when you factor in the fact that a recently bankrupt GM was close to reclaiming its crown, a crown it lost less than two years ago. Rather than widening the gap between itself and GM, Toyota helped close it.

    Toyota has had its troubles these past two years; unfortunately, I don't see things getting better, especially when you look at the quality of its future products (I blog on the automotive industry). The same could probably be said about Honda, a company that has also faltered on the products front. The Americans are rising and the Koreans appear unstoppable. The big wins for Hyundai/Kia will mostly come at the expense of Toyota moreso than any other company.

    Just about everything I said about Japan can be applied to Sony and its PlayStation. Both are not as relevant today as they were the decades prior. The PlayStation used to own the U.S. market, but now it can barely keep up with the Xbox 360.

    Although aging, Kobe has been inconsistent but frequently puts up some great numbers. On the other hand, Japan has been "consistent" with the downward spiral of its companies. I don't see the similarities between Kobe and Japan.

  13. @Kwame
    I would really not characterize Japan's economy as consistently downward spiraling, the country's economy is still huge, even though it probably has passed it's prime. In that sense I really think the analogy with Kobe is really quite apt. Japan is still a strong economy but it is not quite the super strong vital "business is war" type economy it was early on.
    Kobe is still a great player, but he he is no longer the super athletic or flashy player he used to be. He has passed his peak physically but is still so good because he has gotten better in a lot of other areas of his game. He has become more efficient with his play and smarter in becoming a leader and a team player, also improving his jump shooting significantly has made him still a dangerous scorer when he wants to be. Japan is similar in that it is still among the top economies in the world, but has pretty much passed it's peak in some areas (i.e. manufacturing), but is able to make up for in a lot of other ways (tech innovators nintendo, etc.) it will still be in the elite for awhile longer.

  14. @Kwamie Owusu "In agreement with The Chinese Guy, I think the South Korean economy is reaching its saturation point. I give it 10 years."

    I think it is fairly common knowledge to those who follow the Korean economy that it is reaching a "saturation" point. No one is more aware of this than the Korean government itself, which is why Lee Myung Bak came out with new "growth engines" early last year which include robotics and green technology. If Korea can get leadership positions in these fields, it's a whole new ball game, and you may have to push back that 10 year estimate by a few more decades.

    We'll have to wait and see though because right now, Korea is behind several countries in some key technologies, and there are plenty of obstacles ahead, but I find it hard to bet against them because Korea, perhaps better than all other OECD nations, has shown a remarkable ability to adapt and at surprising speeds. Compare it, for instance, to Japan which seems to be having an extraordinarily difficult time breaking away from the business models they established in the 70's and 80's.

    And as Brutus mentioned above, reunification is another game changer. I'm gonna sound like a prick highlighting this over the lives of 23 million North Koreans, but if South Korea can get its hands on the estimated 8-15 trillion dollars worth of natural resources in the North Korean mountains, that will serve as a nice foundation for the next 100 years. But another thing to consider: apparently, the Chinese government has already begun to extract these resources, so a lot will depend on when reunification happens (if ever), and how much of these resources are left.

  15. Over the last 30 years, the average standard of living has risen dramatically in Korea .... and steadily declined in America.

  16. Korea is a fucking place. I read an article about a writer who was dead of starvation.

    What is the use of wealth of a nation if it let a talented writer to die of starvation?

  17. Myung-Jun, keep the comments relevant to the post. Thanks.

  18. To the Korean, i am sorry for that irrelevant comment. I was very angry at my country yesterday, I just needed a place to vent my resentment. Your bog is my recent playground.

    Again I am very sorry.

  19. I'm far from an economics expert here, but from living here and just looking around me the thing that worries me sometimes is the housing market. I can't look in any direction without seeing new apartments being built left and right. New apartments being built couldn't be considered "affordable housing" by any means. The two entire city blocks next to mine (by sangwangshimni station, it appears on google maps I beleive, if not congnamul) one of the "new towns" are going in. They completely demolished the two city blocks (save for a church and a hospital) and are going to put in all new housing and commercial areas. What was a lower middle class neighborhood full of affordable housing (like my dong next door, hwanghak-dong) it will be full of new sparkling apartments and commercial space with (i'm assuming) a hefty price tag.

    It seems to me (and again, please tell me if I'm wrong here as I'm not an expert) that eventually the market is going to be saturated with all these apartments and the prices are going to start going down, not up, and people are going to be loosing money. Since Koreans invest a lot in housing (similar to how Americans used to, perhaps with more fervor) this, to me, seems like a recipe for disaster. Another bubble waiting to burst.

    Other parts of the economy, though, seem to be thriving. I'm interested to see what will happen with imports and exports from the US now that the free trade pact was signed...

  20. 조안나
    I agree about the housing, but I'm no expert either.

    I heard recently that Incheon's big redevelopment has stalled and there are whole derelict neighbourhoods waiting to be rebuilt, but (I believe) the money dried up.


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